The water regulator finally wakes up from the stench of the sewage scandal | Nils Pratley


Hwhen Ofwat awoke from his slumber? There are encouraging signs. When it comes to the problematic issue of sewage – particularly the huge amounts of stuff being pumped into rivers – the water regulator in England and Wales is suddenly talking as if it’s serious.

“From what we’ve seen so far, the scale of the problem here is shocking,” chief executive David Black said, using unusually strong language, as he added South West Water, owned by publicly traded group Pennon, to the list of target companies for foreclosures related to the management of sewage treatment plants.

The question is whether Ofwat has any right to be shocked. It has regulated the sector since privatization 30 years ago and should have uncovered the industry’s dirty secrets by now. But the joint investigation launched last November with the Environment Agency (EA) into potentially illegal leaks at sewage treatment plants is – possibly – turning into a big event.

The stench of a scandal grows with every update. South West joins Anglian, Northumbrian, Thames, Wessex and Yorkshire on the regulator’s list of specific targeting. More than half of the industry is now involved in a procedure that can lead to fines of up to 10% of sales.

The city is starting to take it seriously. Jefferies analysts, who recently hosted the chief executive of campaign group Surfers Against Sewage to brief fund managers on the grim technicalities of waste management, have been warning of “increasing regulatory risks for UK water” for some time. They called Ofwat’s Pennon move “a strong-toned update that signals to us that more review and regulation is ahead.”

Also high time. Data from the EA showed a staggering 2.7 million hours of burials in England in 2021. Only 14% of England’s rivers are considered to be of good ecological standard, a grotesque statistic. Sewage isn’t the only cause of the rivers’ poor health, it should be said, but the game-changer for the water companies could be better monitoring equipment.

One suspicion is that companies have previously interpreted ambiguous data in their favor. Another reason is that the claimed capacities of the sewage treatment plants were not maintained, leading to excessive discharges. Both touch on basic license conditions. Should evidence of violations be found, the authorities would be forced to become violent.

Despite regulators’ deserved reputation for shyness, there is precedent. Southern Water was ordered by Ofwat to pay 126m in 2019. The totals presented a rare case where owning a water company is not a one-way bet, with customers paying through their bills. The owners of the privately owned Southern promptly sold it.

However, customers should be prepared to fund future network upgrades, which will clearly be needed to meet the more stringent storm overflow requirements. Jefferies put the cost at between £23 billion and £80 billion, meaning average household bills range from £69 to £140 a year. But the backward focus of Ofwat/EA investigation is the first event. It is vital that both bodies take a stand against the inevitable corporate lobbying. This is one last chance to restore regulatory credibility to an issue that should have been addressed a few decades ago.

Heathrow owners cope with reduced fees

Heathrow Chief Executive John Holland-Kaye has promised passengers a “worse experience” (yes, worse) after the Civil Aviation Authority (CAA) announced it would gradually increase landing charges from £30.19 per passenger to £26.31 lower 2026.

He and the Heathrow owners should stop grumbling. The £30.19 was an interim measure while the CAA waited to see how quickly passengers returned. Demand is coming back much quicker than expected, so the pre-pandemic £22 fee is a better basis for comparison.

Meanwhile, owners – led by Spanish group Ferrovial and the Qatar Investment Authority – should remember they weathered Covid without investing any additional equity at Heathrow and still own an asset with an investment-grade debt rating. You’ll deal with it. There is one final round of Argy-Bargy ahead, but the CAA likely got their totals about right.

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Walgreen missed his moment to sell Boots

The auction for the Chemist’s Boots has never been above lukewarm, and it’s now closed. Walgreens pulled the sale, blaming an “unexpected and dramatic shift” in financial markets.

Boots, it must be said, weren’t a win – the chain had looked tired and underinvested for ages – but on this occasion the official explanation for a non-sale seems correct. Leveraged deals are utterly unpopular, say dealmakers everywhere, while the outlook for inflation and interest rates is so unclear. Walgreens missed its moment by about six months.


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